JUMBO EAST REALTY INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPI NES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION JUMBO EAST REALTY INC., CTA CASE NO. 8 3 80 Petitioner, Members: - versus- CASTANEDA, JR., Chairperson/ CASANOVA, and COTANGCO - MANA LASTAS,J~ COMMISSIONER OF INTERNAL Promulgated : REVENUE, MAR 1 6 2015 ~ Respondent. r/ 'M'/ ' x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION - CASTANEDA, JR., J., : This Petition for Review filed by Jumbo East Realty, Inc. seeks the cancellation of Assessment Notice Nos. 34-06-IT-0916, 34-06-VT- 0917, 34-06-WE-0918, 34-06-Ff-0919 and 34-06-DS-0920, finding it liable to pay deficiency income tax, value added tax, expanded withholding tax, final tax and documentary stamp tax, respectively, for the taxable year 2006. THE FACTS Petitioner Jumbo East Realty, Inc. is a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office at 3rd floor, Pako Bldg., Pedro Gil corner Gen. Luna Streets, Paco, Manila.1~ 1 Par. 1, Petition for Review, Docket, p. 6; Par. 1, Joint Stipulation of Facts and I ssues (JSFI ), Docket, p. 163.

DECISION CTA CASE NO. 8380 Respondent is the Commissioner of the Bureau of Internal Revenue (SIR), duly appointed to exercise the powers and perform the duties of her office including, inter alia, the power to decide disputed assessments, refunds of internal revenue taxes, fees, other charges, and penalties imposed in relation thereto, or other matters arising under the Tax Code. She holds office at the SIR National Office Building, Agham Road, Diliman, Quezon City. On April 12, 2007, petitioner filed its Annual Income Tax Return (ITR) for taxable year 2006.2 On January 7, 2011, petitioner received a Formal Letter of Demand3 (FLD). Attached thereto are the Details of Discrepancies4 and Assessment Notice Nos. 34-06-IT-0916, 34-06-VT-0917, 34-06- WE-0918, 34-06-FT-0919, and 34-06-DS-0920/ the details of which are as follows: 6 DEFICIENCY INCOME TAX pursuant to Sec. 6(B) & 32 NIRC p 1 053 998.00 Net Income (Loss) per investigation Add: Adjustment per investigation Disallowances - unsupported/ non-filing of sched ule 50% disallowance- operatinq expenses P337 588.50 100% disallowance - taxes & licenses 209 706.00 547 294.50 Income - understated 155 681.36 Adjusted Taxable Income p 1,756 973.86 Tax due p 614 940.85 Less: payments Deficiency Income Tax 160 834.00 Add: 25% Surcharqe (Sec. 248) p 454 106.85 20% Interest p.a. from UP to 12/3 1/2010 Compromise Penalty (Sec. 254 in relation to 329 224.97 RMO 19-2007) TOTAL AMOUNT DUE & COLLECTIBLE 16 000.00 p 799,331.82 DEFICIENCY VALUE-ADDED TAX p 3 375 622.00 pursuant to Sec. 108/110/ 113 NIRC Taxable Sales per Return 155,681.36 Add: Adjustment per investigation p 3,531,303.36 Income - understated Adjusted taxable income Output tax p 417 870.88 Less: I nput tax Value-added Tax payable - p 417 870.88 2 Par. 3, JSFI, Docket, p. 163. 3 Exhibit "A", Docket, pp. 17-19; Par. 2, JSFI, docket, p. 163; Statement of Material Dates, Petition for Review, Docket, p. 7. 4 Exhibit " A-1", Docket, p. 20. 5 Exhibits "A-2" to "A-6", Docket, pp. 21-25. 6 Exhibit " A", Docket, pp. 17-18.

DECISIO N CfA CASE NO. 8380 Less: payments per return 399 556.36 Tax still due & payable Add : 25% Surcharqe (Sec. 248) p 18 314.52 20% Interest p.a . from up to 12/ 31/ 2010 14 397 .11 Compromise Penalty (Sec. 254 in relation to RMO 19-2007) 4 000.00 TOTAL AMOUNT DUE & COLLECTIBLE p 36,711.63 DEFICIENCY EXPANDED WITHHOLDING TAX pu rsuant to Sec. 79/ 80 NIRC Lega l & Audit fee p 70 000 .00 X 10% p 7 000 .00 Security Services 192 183.10 x 2% 3 843.66 Repairs & Maintenance 79 983.00 x2% 1 599.66 Total EWT due p 12 443.32 Less: remittances 10 843.60 Deficiency Expanded With holding Tax p 1/5 99. 72 Add : 25% Surcharqe (Sec. 248) 20% Interest p.a. from UP to 12/ 31/ 2010 1 266.43 Compromise Penalty (Sec. 254 in relation to RMO 19-2007) 700.00 TOTAL AMOUNT DUE & COLLECTIBLE p 3 566.15 DEFICIENCY FINAL TAX p 6 754 250.00 pursuant to Sec. 24(2), NIRC 10% Dividends payable x Rate p 675 425.00 Final Tax Due - Dividends payable Less: remittances - Deficiency Fina l Tax Add: 25% Surcharge (Sec. 248) p 675 425.00 20% Interest p.a. from up to 12/ 31/ 2010 168/8 56.25 Compromise Penalty (Sec. 254 in relat ion to RMO 19-2007) 534/705.94 TOTAL AMOUNT DUE & COLLECTIBLE 20 000.00 p 1,398,987.19 DEFICIENCY DOCUMENTARY STAMP TAX pursuant to Sec. 24(2) NIRC Renta l Income p 3 53L303.36 DST Due p 3 532.30 Less: payments Deficiency Documentary Stamp Tax - Add : 25% Surcharge (Sec. 248) 20% Interest p.a. from up to 12/ 31/ 2010 p 3 532.30 Compromise Penalty (Sec. 254 in relation to 883.08 RMO 19-2007) TOTAL AMOUNT DUE & COLLECTIBLE 2 816.00 1 000.00 p 8/231.37 On January 281 2011/ petitioner filed a protest of the said assessments/ attaching thereto its supporting documents.8 On March 25, 2011, petitioner received a letter9 dated February 25, 2011 from respondent, informing it that its protest has been jr- 7 Exhibit " B", Docket, pp. 26-28. 8 Par. 2, JSFI, Docket, p. 163; Statement of Material Dates, Petition for Review, docket, p. 7. 9 Exhibit " F", Docket, p. 64.

DECISION CfA CASE NO. 8380 referred to Revenue Officer Rafael M. Lentejas II for re-investigation and at the same time, respondent revised the previous assessments. 10 The details of the revised assessments are as follows: DEFICIENCY INCOME TAX11 Taxable Income p 1 053 998.00 Add: Adjustment per investigation Disallowance- unsupported/ non-filing 50% disallowance-operatinq p 337 588.50 100% disallowance-taxes & licenses 209 706.00 547,294.50 Income - understated (Annex A) 155,681.36 Adjusted Taxable Income p 1,756,973.86 Income Tax Due p 614 940.85 Less: Income Tax Payment 280 479.97 Income Tax Deficiency p 334 460.88 Add : Interest p 262 070.72 278 070.72 Compromise Penalty 16 000.00 612,531.60 INCOME TAX PAYABLE p DEFICIENCY VALUE- ADDED TAX12 Sa les p 3 375 622.34 Add : Income - understated 155 681.36 p 3 531,303.70 Output Tax p 417 870.88 Less: Input tax Value-added Tax Due p - Less : Value-added Tax Payment p 417 870.88 Deficiency Value-added Tax p 14 397.11 399 556.37 Add : Interest 4 000.00 18 314.51 Compromise Penalty p VALUE-ADDED TAX PAYABLE 18 397.11 36 711.62 EXPANDED WITHHOLDING TAX ANALYSIS13 Leqal & Audit Fee p 70 000 .00 X 10% p 7 000 .00 3 843.66 Security Services 192 183.10 x2% 1 599.66 12,443.32 Repairs & Maintenance 79 983.00 x 2% 10 843.60 1 599.72 Total P342,166.10 p 1 266.43 Less: remittances 700.00 3,566.15 Deficiency Expanded Withholdinq Tax Add: Interest Compromise Penalty TOTAL EWT DEFICIENCY p DEFICIENCY FINAL TAX14 p 6 754 250.00 Dividends Payable 10% Final Tax Rate Final Tax Due - Dividends Payable 675 425.00 10 Par. 2, JSFI, Docket, p. 163; Statement of Material Dates, Petition for Review, Docket, p. 7. 11 Exhibit "F-2", Docket, p. 70. 12 Exhibit " F-4", Docket, p. 72. 13 Exhibit "F-3", Docket, p. 71. 14 Exhibit "F-5", Docket, p. 73.

DECISION p 344 909.70 574 325 .00 CTA CASE NO. 8380 84 757.81 101100.00 p 429 667.51 Less: Remittance 16 000.00 Final Tax Deficiency Add : 546 767.51 Interest (P574 325.00 up to 01-05-2010) Interest (P101 100.00 up to 03-15-2011) Comprom ise Penalty TOTAL DIVIDENDS TAX PAYABLE Rental Income DEFICIENCY DOCUMENTARY STAMP TAX1 :> 3 531 303.36 p 3 531.30 DST Due p Less: DST payments - Deficiency DST p Add: Surcharge p 882.83 p 3 531.30 Interest 2 777.45 4 660.28 Compromise Penalty 1 000.00 8,191.58 TOTAL DST PAYABLE p On April 19, 2011, petitioner submitted its Reply16 dated April 15, 2011 to the revised assessment. On October 17, 2011, petitioner received a letter dated September 19, 2011 17 from respondent, rev1smg anew the assessments and reducing further the amounts of deficiency income tax, deficiency VAT, deficiency final tax, and deficiency DST.18 Thus, on November 16, 2011, petitioner filed the present Petition for Review. Respondent filed her Answer19 on January 16, 2012, raising the following Special and Affirmative Defenses: "SPECIAL AND AFFIRMATIVE DEFENSES XXX XXX XXX 8. The Honorable Court has no jurisdiction to entertain the instant petition for review due to prematurity. The Petitioner is, in actuality, questioning the validity of the Fina l Assessments and the recomputed Jh-- assessments based on the reinvestigation granted after 15 Exhibit "F-6", docket, p. 74. 16 Exhibit "G", docket, pp. 75-78. 17 Exhibits "I " to "I -5", docket, pp. 110-117. 18 Par. 2, JSFI , docket, p. 163; Statement of Material Dates, Petition for Review, docket, p. 7. 19 Docket, pp. 125- 132.

DECISION CfA CASE NO. 8380 the Final Assessments were protested . There are no final assessments issued as a result of the reinvestigation; 9. The findings of the revenue officer who conducted the reinvestigation is still subject for review by the Assessment Division, approval by the Commissioner of Internal Revenue or her duly authorized representative, the Regional Director; and, the subsequent issuance of the Preliminary Assessment Notice and the Final Assessment Notice; 10. In sum, the adversely affected party may file a petition for review with the Honorable Court within the thirty (30) days from receipt of the adverse ruling or inaction of the Commissioner of Internal Revenue or her duly authorized representative, the Regional Director. Hence, it is primordial that the decision or ruling or inaction must be attributed to Respondent herein. However, in the case at bar, there was none because the 19 September 2011 letter would clearly show that the letter was signed by the Revenue District Officer Petronilla C. Fernando only and not by the Regional Director as authorized representative of Respondent or by the Commissioner herself. The word 'decisions' in Section 7 (a) (1) of R.A. 1125, as amended by R.A. No. 9282, has been interpreted to refer to the decisions of the Commissioner of Internal Revenue on the protest of the taxpayer against the assessments as held by the Honorable Court in the case of Mizuho Corporate Bank, Ltd. Manila Branch vs. The Commissioner of Internal Revenue, C.T.A. Case No. 7082, 8 January 2007; 11 . Petitioner deemed the issua nee of the 19 September 2011 letter signed by the Revenue District Oficer Petronilla C. Fernando as a denial of its protest and the computations attached thereto as Assessments which is not yet final. Had Petitioner exercised prudence and not haphazardly invoked the intervention of the Honorable Court, Respondent would have exhausted all administrative remedies. xxx XXX XXX r XXX

DECISION CTA CASE NO. 8380 12. The assessment attached to the 19 September 2011 letter was a mere computation of how the revenue district officer came up with the amounts in his reinvestigation. xxx XXX XXX XXX 13. Since there is no Final Assessments issued yet to the Petitioner as a result of Petitioner's Protest, Petitioner has no cause of action to file the instant petition for review; VALIDITY OF THE ASSESSMENTS 14. Petitioner's claim that Assessment Notices Nos. 34-06-IT-0916, 34-06-VT-0917, 34-06-WE-0918, 34-06- FT-0919 and 34-06-DS-0920 covering deficiency income tax, deficiency value added tax, deficiency expanded withholding tax, deficiency final tax and deficiency documentary stamp tax for taxable year 2006 are null and void for failure of Respondent to sufficiently inform Petitioner of the legal and factual bases in violation of Sec. 228 of the Tax Reform Act of 1997 and the Due Process Clause of the Constitution are false and misleading. The truth of the matter is, Petitioner has been fully informed of the legal and factual bases of the assessments; 15. The Formal Letter of Demand dated 29 December 2010 and the Details of Discrepancies attached as Annex 'A' thereto enumerated in detail the facts and the laws on which the computations were made; 16. After Petitioner filed the Protest on 28 January 2011, Revenue District Officer Petronilla C. Fernando sent two letters dated 25 February 2011 and 19 September 2011 including annexes attached thereto enumerating in both letters the facts and the laws on which the computations were made. These facts allowed Petitioner to intelligently file a reply dated 19 April 2011 even f/v attaching thereto Petitioner's own annexes;

DECI SION XXX XXX CTA CASE NO. 8380 XXX 19. In the protest letter dated 27 January 2011, Petitioner admitted that Petitioner cannot locate receipts or invoices to support its claim for ordinary and necessary expenses; that official receipts were issued in the name of EB Barcelon Inc., the former corporate name of petitioner herein, Jumbo Realty Inc.; that, Petitioner attached several documents to their protest; hence, Petitioner stated that: 'These are ordinary and necessary expenses which are all supported by receipts or invoices but unfortunately we cannot locate them at present because the accountant handling the books of the company at the time is no longer with us.' 'We respectfully submit that the taxes and licenses paid in 2006 should be allowed and we disagree to the findings of 100�/o disallowance of 2006 taxes and licenses. In this regard we are again submitting the 'Schedule of Taxes, Licenses and Fees' together with the corresponding supporting documents attached hereto as Annexes 'A' to 'A-6' for your reference. The official receipts are in the name of EB Barcelon Inc., the former corporate name of Jumbo Realty, Inc.' XXX XXX XXX 21. The Annex 'A' attached to Annex 'I' to the Petition for Review would clearly show that Petitioner replaced its name from E.B. Barcelon Enterprises, Inc. to Jumbo East Realty, Inc. as early as August 1982. And in the year 2006, Jumbo East Realty Inc. has still been using the name E.B. Barcelon Enterprises, Inc. and Petitioner admitted such fact in its letters attached as Annexes 'G' and 'I' to the Petition for Review as there are receipts issued in the name of E.B. Barcelon Enterprises, Inc.;?v

DECI SION CTA CASE NO. 8380 22. Petitioner was claiming as expenses on utilities and communications official receipts issued in the name of E.B. Barcelon Enterprises, Inc., as legitimate expenses of herein Petitioner, Jumbo East Realty, Inc. This undisputable fact would lead one to believe that, if Petitioner was using its old corporate name, it is possible that Petitioner earned income under the same and old corporate name; 23. These facts taken altogether would distinctly and clearly show the evident bad faith on the part of Petitioner." The parties submitted their Joint Stipulation of Facts and Issues20 on April 12, 2012; and on April 24, 2012, the Court issued its Pre-Trial Order21 � During trial, petitioner and respondent presented their testimonial and documentary evidence. Pursuant to the March 3, 2014 order of this Court,22 respondent filed her Memorandum23 on March 27, 2014 and petitioner filed its Memorandum24 on May 8, 2014. Thereafter, the case was submitted for decision . THEISSU ES The parties submitted the following issues25 for the resolution of this Court: a) Does this Honorable Court have jurisdiction to entertain this petition? b) Do the said assessment notices violate Section Jv 228 of R.A. 8424 or the Tax Reform Act of 1997 as 20 Docket, pp. 163-164. 21 Docket, pp. 177-185. 22 Minutes of the hearing dated March 3, 20 14, Docket, p. 431. 23 Docket, pp. 432-445. 24 Docket, pp. 452-464. 25 JSFI, Docket, pp. 163-164.

DECI SION CTA CASE NO. 8380 amended and the Due Process Clause of the Constitution as to render them a nullity? c) If they are not, do the Assessment Notice Nos. 34-06-IT-0916; 34-06-Vf-0917; 34-06-WE-0918; 34-06- FT-0919; and 34-06-DS0920, have any factual and legal bases? d) Whether or not Petitioner can be held liable for using the old corporate name "EB Barcelon, Inc." of petitioner Jumbo Realty Inc., when the change of name was made in 1982 in receipts claimed as legitimate expenses by Petitioner in 2006. THE COURT'S RULING Whether or not the Court has jurisdiction over the case. Respondent argues that petitioner wrongly considered the September 19, 2011 letter signed by Revenue District Officer Petronilo C. Fernando as a denial of its protest. Furthermore, respondent avers that the findings of the revenue officer who conducted the reinvestigation are still subject for review by the Assessment Division, which must be with the approval of respondent or her duly authorized representative, the Regional Director. On the other hand, petitioner asserts that this Court has jurisdiction to entertain the Petition, as the language used in the assessment notices and FLD leaves no room to doubt that it is a final determination of respondent. Moreover, petitioner argues that respondent clothed her Regional Directors the authority to decide with finality any matter falling within the ambit of her power. While it may be argued that it was not the Regional Director, but the Revenue District Officer, who acted upon the said protest, the action of the Revenue District Officer is considered the action of the Regional Director given the realities of the administrative machinery of the government. ~

DECISION CTA CASE NO. 8380 In the case of Oceanic Wireless Networly Inc. v. Commissioner ofInternal Revenue/ et. al.26, the Supreme Court ruled that: The determination on whether or not a demand letter is fi nal is conditioned upon the language used or the tenor of the letter being sent to the taxpayer. We laid down the rule that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment, thus: ...we deem it appropriate to state that t he Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by Sections 7 and 11 of Republic Act No. 1125, as amended. On the basis of his statement indubitably showing that t he Commissioner's communicated action is his final decision on the contested assessment, t he aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues."(Emphasis supplied) In the Oceanic Case, the Supreme Court held that the Commissioner of Internal Revenue should always indicate in clear and unequivocal language her final decision on the disputed assessment. Here, the subject letter dated September 19, 2011 states: "This has reference to your protest letter dated April 15, 2011 raising several issues against the revised computation of deficiency taxes prepared last February 25, 2011. After considering your protest and its supporting documents the following findings still r stands. xxx xxx xxx" (Emphasis supplied) 26 G.R. No. 148380, December 9, 2005, 477 SCRA 205 citing the case of Surigao Electric Company_ Inc. v. Court of Tax Appeals, G.R. No. L-25289, June 28, 1974, 57 SCRA 523 .

DECISI ON CTA CASE NO. 8380 From the foregoing, the subject letter of the respondent clearly states that its findings vis a vis the petitioner's deficiency tax assessments stand. Hence, there is no doubt that the September 19, 2011 letter of respondent is the denial of the protest contemplated under Section 228 of the National I nternal Revenue of 1997, as amended (NIRC of 1997, as amended), which provides: "SEC. 228. Protesting of Assessment. - XXX XXX XXX If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by t he decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of t he one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable." On the issue whether the letter issued by Revenue District Officer Petronilla C. Fernando constitutes the final decision of the respondent on petitioner's protest, Section 7 of the NIRC of 1997, as amended, provides: "SEC. 7. Authority of the Commissioner to Delegate Power.- The Commissioner may delegate the powers vested in him under t he pertinent provisions of this Code to any or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of fina nce, upon recommendation of the Commissioner: Provided, However, That the following powers of the Commissioner shall not be delegated : (a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance; (b) The power to issue rul ings of first impression or to reverse, revoke or modify any existing ruling of the Bureau; ~

DECISION CfA CASE NO. 8380 (c) The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax liability: Provided, however, That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (PSOO,OOO) or less, and minor criminal violations, as may be determined by rules and regulations to be promulgated by the Secretary of finance, upon recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, the heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and (d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept."(Emphasis supplied) Under Section 7 of the NIRC of 1997, as amended, the general rule is that the CIR may delegate the powers vested in her to any or such subordinate officials with the rank equivalent to a division chief or higher. However, the same admits of several exceptions, as enumerated above. It is noteworthy that the power to assess is not included as one of the exceptions to the powers which may be delegated by respondent. Ergo, the same may be delegated to her subordinate officials. On the other hand, the power to delegate the examination and assessment of any taxpayer is provided for under Section 6 of the NIRC of 1997, as amended, viz: "SEC 6.Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement.- (A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however; That ~

DECI SION CTA CASE NO. 8380 failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative."(Emphasis supplied) Based from the above-quoted provisions, the respondent may delegate her power to examine and assess any taxpayer. Meanwhile, such power is not expressly mentioned under the exceptions provided for in Section 7 of the NIRC of 1997, as amended. Hence, applying the foregoing provisions in the present case, the letter signed by Revenue District Officer Petronilla constitutes the final decision of the respondent because the power to assess petitioner may be delegated upon the former.27 Moreover, it is clear from the letter dated February 25, 2011 that petitioner's case has been elevated to Revenue Officer Rafael M. Lentejas II, and that the letter dated September 19, 2011 issued and signed by Revenue District Officer Petronilo C. Fernando is a mere reiteration of the February 25, 2011 letter which found petitioner liable for deficiency income tax, value added tax, expanded withholding tax, final tax and documentary stamp tax, respectively. In other words, the September 19, 2011 issued by the Revenue District Officer is tantamount to a denial of petitioner's protest, which denial is ripe for appeal before this Court. Considering the foregoing, the Court rules that it is clothed with jurisdiction to take cognizance of the case. Whether or not the subject assessments were lawfully issued by the respondent. Petitioner asserts that the subject assessments are void for failure of respondent to sufficiently inform the petitioner of the legal and factual bases thereof. Further, the revisions of the assessments r of its deficiency taxes show that respondent is uncertain as to its tax liabilities. 27 See PEA Tollway Corporation vs. Commissioner of Internal Revenue, CTA Case No. 7382, Resolution dated December 19, 2006.

DECISI ON CTA CASE NO. 8380 On the other hand, respondent contends that the subject assessments state the facts and the laws from which the assessments were based, enabling petitioner to file an intelligent reply. A reading of the September 19, 2011 letter28 denying the subject protest shows that the same set forth, in detail, the factual and legal bases of respondent's assessment. Hence, petitioner's right to due process was not violated and the subject assessments were lawfully issued by respondent. Whether or not petitioner should be held liable based on the assessments. Finally, the Court shall proceed to determine the correctness of the subject assessments. On October 17, 2011, petitioner received respondent's letter dated September 19, 2011 denying the protest but reducing fu rther the amounts for deficiency income tax, deficiency value added tax, deficiency final tax and deficiency documentary stamp tax.29 Details of the revised assessments are as follows: DEFICIENCY INCOME TAX30 Taxable Income p 1 053 998.00 Less: Disa llowance of Expenses for Failure to 442 441.00 1 496,439.00 Substa ntiate 35% 50% disa llowance 523 753 .65 276, 903.49 Adj usted Taxable I ncome p 246 850 .16 Income Tax Rate 236 339.13 483, 189.29 Income Tax due p 3 375 622.34 Less: Income Tax payment p 12% Income Tax Deficiency p 220 339.13 Add: Interest 405 074.68 Compromise 16 000.00 - INCOME TAX PAYABLE p Revenue DEFICIENCY VALUE ADDED TAX3 1 Multiply: VAT Rate p Output tax Less: I nput tax p 28Supra., Note 13. 29 JSFI, par. 17, Docket,p. 163. 30 Exhibit " I-1", Docket, p. 113. 31 Exhibit " I-2", Docket, p. 114.

DECISION CTA CASE NO. 8380 VAT Due p 405 074.68 Less: VAT Payment 399,556.37 VAT Deficiency p Add: Interest p 5 167.56 5 518.31 Compromise Penalty 1 500.00 6,667.56 TOTAL VAT PAYABLE p 12,185.87 EXPANDED WITHHOLDING TAX ANALYSIS32 7 000.00 3 843.66 Leqal & Audit Fee p 70 000.00 10% p 1 599.66 12 443.32 Security Services 192 183.10 2% 10 843 .60 1 599.72 Repairs & Maintenance 79 983.00 2% 1 266 .43 Total P342 166.10 p 700.00 3 566 .15 Less: remittances 6 754 250.00 Deficiency Expanded Withholding Tax p 10% Add : Interest 675 425.00 574 325.00 Compromise Penalty 101100.00 TOTAL EWT DEFICIENCY p 429 667.51 16 000.00 DEFICIENCY FINAL TAX3 3 p Dividends payable 546,767.51 Multiply: Final Tax Rate p Final Tax Due- Dividends payable p 344 909.70 3 531 303.36 Less : Remittance 3 531.30 Final Tax Deficiency 84 757.81 Add : Interest (P574,325.00 up to 01-05-2010) p - Interest (P 101,100.00 up to 03-15-2011) 3 531.30 Compromise Penalty TOTAL DIVIDENDS TAX PAYABLE 4 660.28 8,191.58 Rental Income DEFICIENCY DOCUMENTARY STAMP TAX34 DST Due p Less: DST payments Deficiency DST p Add: Surcharge p Interest Compromise Pena lty p 882.83 TOTAL DST PAYABLE 2 777.45 1 000.00 p I. Deficiency Income Tax- P483,189.29 The final revised deficiency income tax assessment of P483, 189.29 arose from the following: a. 50% disa llowance of various operatinq expenses P337,588.50 50% disa llowance of taxes and licenses 104 852.50 P442 441.00 disallowance of petitioner's claimed creditable taxes b. withheld during the year 32 Exhibit "I-3", Docket, p. 115. 33 Exhibit "I-5", Docket, p. 117. 34 Exhibit "I -4", Docket, p. 116.

DECISION P168,78l.0035 ITA CASE NO. 8380 76,784.4936 p 91 996 .51 Creditable taxes withheld durinq the year per ITR Less: Creditable taxes withheld with certificates (BIR Forms No. 2307) as found by respondent The Court shall determine the propriety of the aforesaid disallowances. a. 50�/o disallowance of various expenses and taxes and licenses - P442,441.00 Invoking Sections 232, 235 and 34 of the NIRC of 1997, as amended, respondent disallowed the amount of P442,441.00 representing 50�/o of petitioner's claimed deductions for the following operating expenses including taxes and licenses for petitioner's failure to substantiate the same:37 Operatinq Expenses Claimed 50�/o Transportation Amount Per ITR Disallowance Utilities Reprsentation p 107,767.00 p 53,883.50 Stationeries and Supplies 104 952.50 Communications 209 905.00 31 333.00 Insurance 62 666.00 19,715.00 Donation 39, 430 .00 69 461.00 Miscellaneous 138,922.00 22,095.00 44, 190.00 11 197.50 Taxes and Licenses 22,395.00 24,951.00 49,902.00 p 675,177.00 P337,588.50 p 209,706.00 P104,852.50 Total p 442,441.00 The Court finds the disallowance in order. Section 34(A)(1)(b) of the NIRC of 1997, as amended, states that: "SEC. 34.Deductions from Gross Income. - xxx (A) Expenses. - XXX 35Exhibit " H", the sum of P126,537 and P42,244.00 (lines 28C and 28D). 36Exhibit " I ", Docket , p. 111. 37Exhibit "I-1", Docket, p. 113; Exhibit "A-1", Docket, p. 20.

DECI SION CTA CASE NO. 8380 (a) In General. - There shall be allowed as deduction from gross income all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise of a profession, including: XXX (b)Substantiation Requirements. - No deduction from gross income shall be allowed under Subsection (A) hereof unless the taxpayer shall substantiate with sufficient evidence, such as official receipts or adequate records: (i) the amount of the expense being deducted, and (ii) the direct connection or relation of the expense being deducted to the development, management, operation and/or conduct of the trade, business or profession of the taxpayer." Clearly, no deduction from gross income shall be allowed unless the taxpayer shall substantiate with sufficient evidence the amount of expense being deducted, and the direct connection or relation of the expense being deducted to the development, management, operation and/or conduct of the trade, business or profession of the taxpayer. In the case of Cyanamid Philippines, Inc. v. The Court of Appeals, the Court of Tax Appeals and Commissioner of Internal Revenu~8, the Supreme Court held that: Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is, in fact, covered by the exemption so claimed. Deductions for income tax purposes partake of the nature of Jt- tax exemptions; hence, if tax exemptions are strictly construed, then deductions must also be strictly construed.39 38G.R. No. 108067, January 20, 2000, citing CJR v. Mitsubishi Metal Corporation, 181 SCRA 214. 39 CJR v. General Foods (Phils.), Inc., G.R. No.143672, April 24, 2003, 401 SCRA 545.

DECISION CTA CASE NO. 8380 Consequently, the burden of proof rests upon the petitioner to prove that it is entitled to deduct from its gross income the various operating expenses in the total amount of P675,177.00 and taxes and licenses in the amount of P209,706.00. However, petitioner failed to submit its supporting documents, i.e., invoices or official receipts, to substantiate its claimed operating expenses of P675,177.00. While petitioner submitted various official receipts (Exhibits "B-2" to "B-7'140) to support its claimed taxes and licenses in the amount of P209,706.00, the same were denied admission by the Court for petitioner's failure to present their original copies for comparison, except for Exhibit "B-6".41Nevertheless, Exhibit "B-6" cannot be accorded any probative value in the present case as it pertains to a payment made in 2007 and hence, irrelevant. Considering that petitioner's claimed deductions for various operating expenses in the amount of P675,177.00 and taxes and licenses in the amount of P209,706.00 were not adequately supported by documentary evidence, the Court upholds the respondent's disallowances. In this regard, the Court shall apply the 50�/o rule of approximation provided under Sections 2.3 and 2.4(c) of Revenue Memorandum Circular (RMC) No. 23-2000, in relation to Section 6(B) of the NIRC of 1997, as amended, to wit "SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement - XXX XXX XXX (B) Failure to Submit Required Returns/ Statement~ Reports and other Documents. - When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable. ~ 40Docket, pp. 30-35. 41Resolutions dated August 29, 20 12 and November 14, 2012, Docket, pp. 226-227 & 277-280.

DECISI ON CTA CASE NO. 8380 In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes."(Emphasis supplied) "REVENUE MEMORANDUM CIRCULAR NO. 23-2000 SECTION 2.Prescribed Revenue Procedures. - XXX XXX XXX 2.3 Assessment Based on Best Evidence Obtainable. - An assessment based on best evidence obtainable is justified when any of the grounds provided by law is clearly established viz. 1. The report or records requested from the taxpayer are not forthcoming i.e. the records are lost; refusal of the taxpayer to submit such records; 2. The reports submitted are false, incomplete or erroneous. In every case where a taxpayer is ordered to be examined and he refuses or fails to submit his records giving rise to the issuance of a subpoena duces tecum pursuant to RMO No. 35-90, the assessment shall only be issued after a criminal case has been instituted for failure to obey summons. After filing of the complaint against the taxpayer for violation of the Subpoena Duces Tecum, the Legal Division/Prosecution Division shall immediately return the docket of the case to the concerned Revenue Officer. The Revenue Officer shall, upon receipt of the docket, immediately proceed to determine the taxpayer's deficiency internal revenue tax liability in accordance with :;v- the "Best Evidence Obtainable. "

DECISION CfA CASE NO. 8380 2.4 Existing Revenue Procedures and Jurisprudence Governing Assessment Based on the Best Evidence Obtainable. - Provided hereunder are the existing revenue procedures and jurisprudence governing issuance of a deficiency tax assessment based on the best evidence obtainable: XXX XXX XXX (c) Assessment Based on Estimate/ 50% Rule, in the Absence of Receipts to Prove Actual Amount of Expense Deduction. - The Court held in the Mariano Zamora case that, if there is a showing that expenses have been incurred but the exact amount thereof cannot be ascertained due to absence of documentary evidence, it is the duty of the BIR to make an estimate of the deduction that may be allowable in computing the taxpayer's taxable income, bearing heavily against the taxpayer whose inexactitude is of his own making. That disallowance of 50�/o of the taxpayer's claimed deduction is valid."(Emphasis supplied) b. Disallowed Creditable Taxes Withheld - P91,996.51 Respondent's findings show that out of petitioner's reported creditable taxes withheld during the year in the amount of P168,781.0042, only t he amount of P76,784.49 is duly supported by Certificates of Creditable Tax Withheld at Source (BIR Forms No. 2307).43 Hence, the remaining declared creditable taxes withheld in the amount of P91,996.51 were disallowed. A ca reful scrutiny of the BIR Forms No. 2307 presented by petitioner confirmed respondent's finding that only the amount of P76,784.49 creditable with holding taxes were duly substantiated, to wit:~ 42Exhibit "H", the sum of P126,537 and P42,244.00 (lines 28C and 28D). 43Exhibit " I ", Docket, p. 111.

DECISION CTA CASE NO. 8380 Ang, Gui Period Amount of Tax Exhibit Union Electrical Supply, Income Withheld Inc. 10-01-06 to 12-31-06 Payment " G-7"44 p 3 313.53 EPC Marketing I Edward 10-01-06 to 12-3 1-06 p 66 270.60 " G-8"45 6 632.25 P. Chan 10-01-06 to 12-31-06 132 645.00 "G-9"46 Clinton Apparel, Inc. 10-01-06 to 12-31-06 14 224.95 "G-10'A 7 Romeo Sy 01-20-06 to 12-20-06 284,499.00 450.00 " G-11'At! SyGuiTiak 10- 1-06 to 10-31-06 9,000.00 " G-12 'A9 SyGuiTiak 11-1-06 to 11-30-06 16 834.20 "G-13 "~0 SyG uiTiak 12-1-06 to 12-31-06 336 684.00 1 332.60 "G-14 "~ 1 Jean HilisTating 01-31-06 to 12-31-06 26 652.00 1 332.60 "G-15 "52 Carlos Melo 01-01-06 to 12-3 1-06 26 652.00 1 332.60 " G-16"53 Myrna Pinga 01-01-06 to 12-31-06 26 652.00 4 494.00 "G-17 "~ 4 Felipe Tabang 01-01-06 to 12-3 1-06 89 880.00 3 772.80 " G-18"55 Export & Ind ustry Bank 01-01-06 to 12-31-06 75 456.00 3 534.60 " G-19 "~0 Total 70 692.00 3 459.00 69 180.00 16 071.36 32 1 427.20 p 76 784.49 P1,535,689.80 Thus, on the basis thereof, the Court likewise sustains the respondent's deficiency income tax assessment. Accordingly, petitioner is liable to pay the basic deficiency income tax in the total amount of P246,850.16, computed as follows: Taxable Income p 104 852.50 p 1,053,998.00 Add: 50% disal lowance- operating expenses 337 588.50 442 441.00 50% disallowance - taxes and licenses Adjusted Taxable Income p 119,383.00 p 1,496,439.00 Income Tax Rate Income Tax Due 36, 469 .00 35% Less: Tax Credits/ Payments 76 784.49 44,267.00 p 523,753.65 Prior Year's Excess Credits other than MCIT Tax Payments for the First Three Quarters 276,903.49 Creditable Tax Withheld for the Four p 246,850.16 Quarters Total Tax Credits/Payments Income Tax Deficiency 44 Docket, p. 94. 45 Docket, p. 95. 46 Docket, p. 96. 47 Docket, p. 97. 48 Docket, p. 98. 49 Docket, p. 99. 50 Docket, p. 100. 51 Docket, p. 101. 52 Docket, p. 102. 53 Docket, p. 103. 54 Docket, p. 104. 55 Docket, p. 105. 56 Docket, p. 106.

DECISION CfA CASE NO. 8380 II. Deficiency Value Added Tax - P12,185.87 Respondent assessed petitioner for deficiency Value Added Tax (VAT) in the amount of P12,185.87, inclusive of increments, based on the following computation: DEFICIENCY VALUE ADDED TAX57 Revenue f> 3,375,622.34 12% MultiJJiy: VAT Rate f> 405,074.68 Output tax - Less: Input tax f> 405,074.68 399,556.37 VAT Due f> 5 518.31 Less: VAT Payment 6,667.56 VAT Deficiency p 12,185.87 Add: Interest f> 5,167.56 Compromise Penalty 1{500 .00 TOTAL VAT PAYABLE Upon verification of the Monthly Value-Added Tax Declarations (SIR Forms No. 2550M) and Quarterly VAT Returns (SIR Forms No. 2550Q)58 the Court notes that the deficiency in the amount of P5,518.31 arose from the month of January 2006, as follows: Return Period VATable Output VAT Exhibit Output per Discrepancy {Taxable Year Receipts per Return BIR Audit "C" 2006) p 275 918.78 p 27 591.87 p 33 110.25 P5,518.38 January 837 179.47 94 943.16 "C-2" 100 461.54 5 518.38 l 5t Quarter 860 536.02 103 264.32 "C-6" 103 264.32 2no Quarter 832 937.09 "C-10" 99 952.45 - 3rd Quarter 844 969 .76 99 952.47 "C-14" 101 396.37 4th Quarter 101 396.39 (0.02) Total (1st to 4th (0.02) Qtrs) P3,375,622.34 P399 556.34 P405,074.68 P5,518.34 Respondent subjected the January receipts to 12�/o VAT rate instead of 10�/o, the rate applicable for the said period. Anent thereto, Section 108 (A) of the NIRC of 1997, as amended by Republic Act (RA) No. 9337, authorized the President of the Philippines, upon the recommendation of the Secretary of Finance, to raise the VAT imposed on the sale of services and use jk- 57 Exhibit "I-2", Docket, p. 114. 58 Exhibits "C", "C-1", "C-2", "C-4", "C-5", "C-6", "C-8", "C-9", "C-10", "C-12", "C-13" & "C-14", Docket, pp. 36-50.

DECISION CfA CASE NO. 8380 or lease of properties from 10�/o to 12�/o after meeting certain conditions, thus: "SEC. 108.Value-added Tax on Sale of Services and Use or Lease of Properties.- (A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10�/o) of gross receipts derived from the sale or exchange of services, including the use or lease of properties: Provided, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12�/o), after any of the following conditions has been satisfied: (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5�/o); or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent ( 1 1/2�/o);" Through RMC No. 07-06 dated January 31, 2006, the BIR published the full text of the Memorandum from Executive Secretary Eduardo Ermita dated January 31, 2006 announcing that the President has approved the recommendation of the Secretary of Finance to increase the VAT rate from 10�/o to 12�/o effective February 1, 2006 pursuant to Section 4 of RA No. 9337. On the basis of the foregoing, it is clear that petitioner properly subjected its gross receipts for the month of January 2006 to 10�/o VAT, which is the applicable rate for that taxable period. Hence, the Court declares that deficiency VAT assessment should be cancelled. III. Deficiency Expanded Withholding Tax- P 3,566.15 Respondent assessed the petitioner of deficiency expanded withholding tax in the total amount of P3,566.15, inclusive of 1v increments, computed as follows:

DECISION CTA CASE NO. 8380 EXPANDED WITHHOLDING TAX ANALYSIS59 Legal & Audit Fee p 70,000.00 10% p 7,000.00 Security Services 192 183.10 2% 3 843.66 1 599.66 Repairs & Maintenance 79 983.00 2% Total p 12,443.32 p 342,166.10 10,843.60 Less: remittances p 1,599.72 Deficiency Expanded Withholding Tax 1 266.43 Add: Interest 700.00 Compromise Penalty p 3,566.15 TOTAL EWT DEFICIENCY Petitioner argued that the repairs and maintenance was paid to persons not subject to expanded withholding tax (EWf) such as carpenters who undertook some repairs in its office.60 However, no supporting documents were presented to corroborate its assertion. Anent the remaining accounts under audit, no supporting documents were presented to oppose such findings. As previously discussed, Section 34(A)(1)(b) of the NIRC of 1997, as amended, provides that no deduction from gross income is allowed unless the taxpayer can substantiate the same with sufficient evidence. Consequently, respondent's assessment of basic deficiency withholding tax in the total amount of ~1,599.72 should be sustained. IV. Deficiency Final Tax- P 546,767.51 Petitioner's deficiency final tax was computed as follows: Dividends payable P344 909.70 p 6,754,250.00 Multiply: Final Tax Rate 84 757.81 10% Final Tax Due - Dividends payable Less: Remittance p 675,425.00 Final Tax Deficiency 574,325.00 Add : Interest (P 574,325.00 up to 01-05-2010) p 101,100.00 Interest (P 101100.00 up to 03-15-2011) Compromise Penalty 429,667.51 16 000.00 TOTAL DIVIDENDS TAX PAYABLE p 546,767.51 Petitioner admitted that due to lack of funds when dividends for 2006 were declared, the related final taxes withheld in the amount of ~574,325.00 was paid only on January 10, 20116~ 59 Exhibit "I-3", Docket, p. 115. 60 Petitioner's Reply dated April 15, 2011 to Revised Assessment, Docket, p. 77. 61 Exhibit " E" and " E-1", Docket, pp. 62-63.

DECISI ON CfA CASE NO. 8380 On the other hand, respondent considered the payment made on January 10, 2011 and stated that the Bureau was only collecting the increments as adjusted per period of payment62 . The Court finds for the respondent. Section 2.57.4 of Revenue Regulation No. 02-98, as amended by Revenue Regulations No. 12-2001, provides when the obligation to withhold the tax arises, thus: "SECTION 2.57.4.Time of Withholding. - The obligation of the payor to deduct and withhold the tax under Section 2.57 of these regulation arises at the time an income payment is paid or payable, or the income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor's books, whichever comes first. The term "payable" refers to the date the obligation becomes due, demandable or legally enforceable. Provided, however, that where income is not yet paid or payable but the same has been recorded as an expense or asset, whichever is applicable, in the payor's books, the obligation to withhold shall arise in the last month of the return period in which the same is claimed as an expense or amortized for tax purposes."(Emphasis supplied) Based on the above-cited prov1s1on, petitioner is liable to withhold the corresponding final tax on dividends declared at the time it is paid, becomes payable, accrued or recorded as an expense or asset, whichever comes first. After which, the corresponding return and remittance of the final tax must be made within 10 days after the end of each month, except for taxes withheld for the month of December of each year, which return shall be filed and the final tax be paid on or before January 15 of the following year.63 Considering that it had dividends payable as of December 31, 2006 in the amount of P6,754,250.0064, petitioner was already obligated to withhold and remit the final tax due thereon on January j�- 62 Exhibit "I", Docket, p. 112. 63 Section 2.58(A)(2) of RR No. 2-98, as amended by RR No. 12-01, Annex "B" (2). 64 Petitioner's Comparative Balance Sheet as of December 31, 2006 and 2005, under Current Liabilities, BIR Records, p. 136.

DECISION CTA CASE NO. 8380 15, 2007. Thus, petitioner's partial final tax remittance in the amount of P574,325.00 was belatedly made on January 10, 2011. Pursuant to Section 248(A)1) and 249(A) of the NIRC of 1997, as amended, petitioner shall be held liable for the corresponding surcharge and interest in the respective amounts of P143,581.25 and P458,201.21 totalling P601, 782.46, computed as follows : Final WithholdingTax Paid on January 10 2011 p 574,325.00 Increments for Late Remittance: p 143,581.25 25% Surcharge 458,201.21 20% Interest from Jan. 15, 2007 to Jan. 10, 2011 p 601,782.46 (f>574,325.00 X 20% X 1456/365) Total In addition, petitioner is liable to pay basic deficiency final tax in the amount of P101,100.00, computed as follows : Dividends Payable p 6J54,250.00 Final Tax Rate Final Tax Due 10% p 675,425 .00 Less: Final Tax Rem ittance on January 10, 2011 Deficiency Final Tax 574,325 .00 p 101,100.00 V. Deficiency Documentary Stamp Tax - P8,191.58 For petitioner's failure to present proofs of documentary stamp tax payments on lease contracts entered into during taxable year 2006, respondent assessed petitioner of deficiency documentary stamp tax in the total amount of P8,191.58 inclusive of increments, computed as follows: DEFICIENCY DOCUMENTARY STAMP TAX65 Rental Income p 3/531,303.36 DST Due p 3 531.30 Less: DST payments - Deficiency DST p Add: Surcharge 3 531.30 p 882 .83 Interest 2,777.45 4 660.28 Compromise Penalty 1,000.00 8,191.58 TOTAL DST PAYABLE p 65 Exhibit "I-4", Docket, p. 116.

DECISION CTA CASE NO. 8380 Petitioner alleged that the corresponding documentary stamp taxes were paid but the returns and receipts evidencing payment cannot be located.66 However, petitioner's assertion does not hold water. Well- settled is the rule that all presumptions are in favor of the correctness of the assessment and the burden of proof is upon petitioner to prove otherwise.67 In the present case, petitioner failed to provide supporting documents to dispute the assessment. Thus, the assessment is presumed correct. Therefore, petitioner is liable for basic deficiency documentary stamp tax pursuant to Section 194 of the NIRC, as amended, in the amount of P3,532.30, computed as follows: Rental Income p 3,531,303.36 Documentary Stamp Tax: Fist 2,000.00 21000.00 3. 00 3.00 In excess of first 2,000.00 Documentary Stamp Tax Due 3,529 303.36 3,529 303.6 X 1/1000 3 529.30 P3 532.30 VI. Compromise Penalties - P35,200.00 Respondent imposed a total amount of P35,200.00 compromise penalties against the petitioner, broken down as follows: Tax type Compromise Penalty Income Tax Value Added Tax p 16,000.00 Expanded Withholding Tax Documentary Stamp Tax 1,500.00 Final Tax Total 700 .00 1,000.00 16,000 .00 p 35,200.00 Under Revenue Memorandum Order No. 1-90, compromise penalties are only amounts suggested in settlement of criminal liability, and the same may not be imposed or exacted on the taxpayer in the event that a taxpayer refuses to pay the suggested Jt- compromise penalties. 66 Exhibit "G", Docket, p. 78. 67 CIR v. Court ofAppeals_ et. a!., G.R. Nos. 104151 & 105563, March 10, 1995 & I nter-Provincial Autobus Co., I nc. v. CIR, 98 Phil. 290[1956].

DECISION CTA CASE NO. 8380 Significantly, it is also well-settled that the Court has no jurisdiction to compel a taxpayer to pay the compromise penalty because by its very nature, it implies a mutual agreement between the parties in respect to the thing or subject matter which is so compromised, and the choice of paying or not paying it distinctly belongs to the taxpayer.68Absent a showing that herein petitioner consented to the compromise penalty, its imposition should be deleted. The imposition of the same without the conformity of the taxpayer is illegal and unauthorized.69 Hence, there being no compromise agreement between the parties in the instant case, the P35,200.00 compromise penalties imposed by respondent should be cancelled. In sum, petitioner is able to show that its deficiency VAT assessment and compromise penalties are improper. However, the Court finds that petitioner is liable to pay its deficiency income tax, expanded withholding tax, documentary stamp tax and final tax, but in a reduced amount, in relation to the subject assessments. WHEREFORE, in view thereof, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the assessments issued by respondent against petitioner for taxable year 2006 covering deficiency value-added tax in the amount of P12, 185.87 and compromise penalties in the amount of P35,200.00 are hereby CANCELLED. However, respondent's assessments for taxable year 2006 covering deficiency income tax, expanded withholding tax, documentary stamp tax and final tax are hereby UPHELD, but in the modified amount of P1,043,135.19, inclusive of the 25�/o surcharge imposed under Section 248(A)(3) of the NIRC of 1997, as amended, computed as follows : Tax Type Basic Tax 25�/o 20�/o Total Income Tax p 246 850.16 S u r c h a rg e Interest p 308 562.70 Expanded W/holding Tax p 61J12.54 Final Tax 1 599.72 1 999.65 Documentary Stamp Tax 101 100.00 399.93 Sub-total 126 375.00 3 532.30 25 275 .00 P353 082.18 883.08 4 415.38 p 441,352.73 p 88,270.55 Increments on Late p 143 581.25 p 458 201.21 p 601 782.46 Remittance of Final Tax 68 The Philippines International Fair, Inc. v. The Collector ofInternal Revenue, et. al., G.R. Nos. L-1298 and L-12932, March 31, 1962, 4 SCRA 781. 69Commissioner of Internal Revenue v. Lianga Bay Logging Co., Inc., G.R. No.L-35266, January 21, 1991, 193 SCRA 92-93 .

DECISION p 143,581.25 p 458,201.21 p 601 782.46 CfA CASE NO. 8380 P353,082.18 p 231,851.80 p 458,201.21 P1,043 135.19 Sub-total TOTAL In addition, petitioner shall be liable to pay: (a) Deficiency interest at the rate of twenty percent (20�/o) per annum on the basic deficiency income tax, expanded withholding tax, final tax and documentary stamp tax computed from the dates indicated below until full payment thereof pursuant to Section 249(B) of the NIRC of 1997, as amended; Tax Type Basic Tax Deficiency Income Tax p 246,850.16 Interest Expanded Withholding Tax Computed from Final Tax 1,599.72 April 15, 2007 Documentary Stamp Tax 101,100.00 January 15 2007 3,532 .30 January 15, 2007 January 5, 2007 (b) Delinquency interest at the rate of 20�/o per annum on the total amount of f'441,352. 73 and on the 20�/o deficiency interest which have accrued as afore-stated in (a), computed from October 17, 2011 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended; and (c) Delinquency interest at the rate of 20�/o per annum on the deficiency increments for late remittance of final tax in the amount of f'601,782.46 computed from October 17, 2011 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended. SO ORDERED. ~h. c. . ~o4. ~ JtJANITO C. CASTANEDA, J!�. . Associate Justice WE CONCUR: (On Leave) AMELIA R. COTANGCO-MANALASTAS CAESA~ANOVA Associate Justice Associate Justice

DECISION CTA CASE NO. 8380 ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Q__.~�~ c. ~. ~ . JUANITO C. CASTANEDA,t.fR. Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Justice